International tax compliance in a post-OBBBA world

Globalization has created extraordinary opportunities for U.S. taxpayers and multinational businesses. Yet, it has also placed U.S. accountants at the center of a fast-moving regulatory environment. From IRS reporting obligations like Forms 5471 and 5472, to FBAR disclosures with FinCEN, and FATCA reporting requirements, tax professionals have long grappled with a maze of compliance rules.

The recent passage of the One Big Beautiful Bill Act in July adds another layer of complexity. The law reshapes core elements of international taxation, including the rules for controlled foreign corporations, foreign-derived income, and base erosion taxes. For practitioners, mastering both the traditional compliance requirements and the new OBBBA provisions will be essential to advising clients effectively.

Before diving into the OBBBA, it's important to revisit the bedrock compliance obligations that remain firmly in place:

Form 5471 — Information Return of U.S. Persons With Respect to Certain Foreign Corporations

• Who files: U.S. persons (citizens, residents and domestic entities) who are officers, directors or shareholders in certain foreign corporations.
• Purpose: To disclose ownership and activity in controlled foreign corporations. This captures income subject to Subpart F and now, under OBBBA, NCTI (formerly known as GILTI). Net CFC Tested Income is the new name for the former Global Intangible Low-Taxed Income.
• Risk: Non-filing penalties start at $10,000 per year per failure, with additional amounts accruing for continued noncompliance.

Scenario: A U.S. entrepreneur owns 30% of a software development company in Ireland. She must file Form 5471 to disclose her ownership and report the company's income, which may be subject to U.S. inclusion rules. Failure to file could cost her $10,000 per year plus escalating penalties.

Form 5472 — Information Return of a 25% Foreign-Owned U.S. Corporation

• Who files: U.S. corporations with at least 25% foreign ownership, or foreign corporations engaged in a U.S. trade or business.
• Purpose: Tracks related-party transactions with foreign affiliates, ensuring transparency in transfer pricing and cross-border activity.
• Penalty: A steep $25,000 penalty per year, doubled for ongoing delinquency.

Scenario: A German parent company owns 40% of a U.S. distribution subsidiary. That U.S. subsidiary pays royalties back to the German parent. These transactions must be reported on Form 5472. Nonfiling would trigger an immediate $25,000 penalty, doubled for continued delinquency.

FBAR (FinCEN Form 114) — Report of Foreign Bank and Financial Accounts

• Who files: Any U.S. person with foreign accounts totaling more than $10,000 at any point during the year.
• Scope: Includes joint accounts, business accounts, and even accounts over which the filer only has signature authority.
• Penalty: Nonwillful violations can reach $10,000 per account per year. Willful violations can reach the greater of $100,000 or 50% of the account balance per year.

Scenario: A U.S. physician with a retirement account in Canada plus a joint account with her spouse in India exceeds the $10,000 reporting threshold. She must file FBAR even if the accounts generate no income. Nonwillful failure to file could cost $10,000 per account per year.

FATCA/Form 8938 — Foreign Account Tax Compliance Act

• Who files: Specified individuals and certain domestic entities holding foreign financial assets above thresholds (starting at $50,000 for individuals).
• Focus: Broader than FBAR, covering ownership of foreign financial instruments, partnerships, and securities.
• Interaction: Often overlaps with FBAR; both forms may be required in the same year.

Scenario: A U.S. taxpayer invests $75,000 in shares of a Singapore company and holds them in a foreign brokerage account. The FATCA thresholds are crossed, requiring Form 8938 reporting. Even if FBAR is also required, both filings must be made.

The OBBBA's international tax overhaul

The OBBBA has redefined how multinational income is taxed in the U.S. While the old compliance structures remain, the content they report is shifting dramatically.

1. GILTI → NCTI (Net CFC Tested Income)

• Rebranding and simplification: The former GILTI regime is now NCTI.
• No QBAI carve-out: The prior "deemed tangible return" based on Qualified Business Asset Investment is eliminated. This means all CFC income is included.
• Deduction fixed at 40%: Corporate taxpayers may deduct 40% of NCTI, yielding an effective tax rate of roughly 12.6%.
• Foreign tax credit relief: The haircut on foreign tax credits drops from 20% to 10%, allowing taxpayers to claim 90% of foreign taxes.

Implication for CPAs: Clients will need more precise calculations of CFC income and foreign taxes paid. Form 5471 reporting becomes even more critical, as errors in categorizing CFC income may lead to double taxation.

Scenario: A U.S. shareholder owns a CFC in Brazil that earns $1 million in net income and pays $250,000 in Brazilian corporate tax. Under pre-OBBBA rules, only 80% of that tax was creditable. Now, with 90% creditable, the shareholder can offset more U.S. tax, reducing the double-taxation burden.

2. FDII → FDDEI (Foreign-Derived Deduction Eligible Income)

• New name, new math: Foreign Derived Intangible Income, or FDII, is restructured as Foreign-Derived Deduction Eligible Income, or FDDEI, removing reliance on QBAI calculations.
• Deduction fixed at 33.34%: This sets a permanent effective tax rate of about 14% for qualifying income.
• Scope: Incentivizes U.S. companies that generate export-driven income or foreign-facing services.

Implication for CPAs: Form 5472 filers engaged in export activities must revisit their transfer pricing and income allocation, ensuring FDDEI benefits are maximized without triggering compliance flags.

Scenario: A U.S. manufacturer exports high-tech components to Germany. Under FDDEI, the company can claim a lower effective tax rate on income from those exports, making U.S.-based operations more competitive.

3. BEAT adjustments

• Change: Base Erosion and Anti-Abuse Tax, or BEAT, is now permanently fixed at 10.5%.
• Focus: Applies to large corporations making deductible payments to foreign affiliates.

Implication for CPAs: Large corporate clients must reassess intercompany charges — royalty payments, management fees, and service costs — in light of the fixed BEAT rate.

Scenario: A U.S. subsidiary pays $20 million annually in service fees to its French parent company. With BEAT fixed at 10.5%, the tax department must model whether restructuring the intercompany payments could reduce exposure.

4. Attribution rule restoration — Section 958(b)(4)

• Change: Restores prior rule preventing downward attribution of ownership.
• Effect: Fewer unintended CFC classifications.

Scenario: A Canadian company owns a foreign subsidiary, which in turn owns a U.S. subsidiary. Previously, the U.S. subsidiary could have been treated as owning the foreign entity due to attribution, forcing unexpected Form 5471 filing. With Section 958(b)(4) restored, that burden is removed.

Compliance in the new landscape

The OBBBA reforms significantly alter the substance behind reporting. For practitioners, the following strategies are critical:

1. Update client communication: Many taxpayers are unaware that GILTI and FDII are gone. Clear explanations prevent confusion.
2. Revise data collection processes: With QBAI eliminated, collect complete income details for all CFCs.
3. Enhance checklists: Update internal compliance templates to reflect NCTI and FDDEI terminology.
4. Run effective tax rate simulations: Show clients how FTC changes affect their actual tax burden.
5. Consider voluntary disclosure: Use IRS streamlined procedures where clients have past FBAR/FATCA gaps.

Advisory opportunities for CPAs

International compliance isn't just about penalty avoidance — it's a chance to provide strategic value:

• Cross-border planning: Help exporters leverage FDDEI incentives.
• Entity structuring: Use restored attribution rules to eliminate unnecessary CFC reporting.
• Tech integration: Recommend compliance software that automates FBAR and FATCA reconciliations.
• Client education: Publish alerts or host webinars to position your firm as a thought leader.

International tax compliance has always been a high-stakes arena, but the OBBBA has raised the bar. With NCTI replacing GILTI, FDDEI replacing FDII, a permanent BEAT rate, and restored attribution rules, practitioners must pivot quickly to ensure their clients remain compliant.

For CPAs, the challenge is twofold: ensuring timely and accurate filing of traditional forms like the 5471, 5472, FBAR and FATCA, while simultaneously integrating the OBBBA's new provisions into tax planning strategies. Those who master both will not only protect their clients from severe penalties but also deliver meaningful advisory value in a globalized economy.